Wednesday, July 19, 2006

"MasterCard® and Visa® Are Fierce Competitors" [via Senate Hearings]

Among the most audacious comments lobbed by the credit card associations in Washington during the Senate hearing was to suggest that Visa® and MasterCard® compete with each other.

Together they share upwards of 80% market share and while their advertising and marketing campaigns persuade consumers to choose their brand, let us not forget that the banks are in charge. The same banks.

With the wink of an eye and after several late night cocktails, this might a discussion that ESPN®, Pixar®, ABC® and Maramix Films® might have. Each would explain that they compete for the same entertainment dollars and are each "fierce competitors" for consumers' disposable income. But, at the end of the quarter each of these business units add up their wampums and funnel it to their owners: The Walt Disney Company®.

Whatever claims the leading card associations make, the fact is that pre-IPO, both card associations were owned by the very same banks. On one hand, MasterCard Worldwide® explains that they do not make a penny from interchange fees, which must therefore mean that ... the banks do. Then they plead their independents. We guess that infers they are operating as a non-profit charity, as if they don't earn a penny and if they are disconnected from the banks -- which equally control (pre-IPO) both Visa and MasterCard® -- then what is their business model?

Either way, companies still get penalized for prior violations even if after the fact, they attempt to reform their transgressions. As for Visa® proclaiming their recent purity by appointing an independent board and MasterCard® pawning off their liability on new shareholders, that may be a good move forward. But, the antitrust litigation did not begin last week; it is based on claims dating back many years for deceptive, anti-competitive practices.